Tax-Exempt Entities Not Exempt from New Payroll Tax Credit
As odd as it sounds, Tax-Exempt organizations can benefit from one of the new tax credits contained in the recently passed Health Care and Health Care Reconciliation Acts. Under the newly enacted “Small Employer Health Insurance Credit”, tax-exempt entities that meet certain criteria can actually receive a Payroll Tax Credit for health insurance premiums it pays on behalf of their employees. If the exempt organization qualifies, it can receive a credit against its federal payroll tax of up to 25% (increasing to 35% in 2014) of those health insurance premiums, to be taken on the entity’s quarterly Payroll Tax Return (Form 941). That can be a nice chunk of change!
The criteria are, however, somewhat stringent and complicated. First, in order to qualify, the exempt organization must have no more than 25 employees, and those qualifying employees can’t earn an average annual income greater than $50,000. Second, there’s a maximum deemed premium on which the credit can be calculated. The IRS has released the first chart detailing the deemed premium amounts applicable to all states and some sub-regions, which range from $9,365 to $14,138 for family coverage. Third, starting with the 2014 calendar year, the health insurance premiums that qualify must be from polices purchased through the as-yet-to-be-defined “exchange”. Until then, pretty much all standard health insurance policy premiums qualify.
Even given the complexities and limitations of the credit, it can still provide a great benefit to small exempt organizations. Working with your CPA, you should be able to quickly determine if your organization qualifies and, if not, what steps you might take to qualify for it.